Saudi Capital Markets Authority - Changes to Corporate Governance New Definition of "Independent Director"

Well, it really is the season for corporate governance (or at least official announcements  about it).  The Saudi CMA has issued an amendment to the definition of "independent director" today.  So far only the Arabic text is posted.

A few quick comparisons:

1. Both codes set forth certain points which make a director not independent.  Bahrain's test is within the past one year.  CMA's the past two years.
2. The definition of "associate" is spelled out in detail in terms of personal relationships in the Saudi code.  The Bahrain Code just uses the term "associate" which does not appear to be defined in the Code itself.
3. The Bahraini Code has a relatively low threshold of BD31,000 (US$82,150).  Payments over this amount mean an individual is not independent.
4. The CMA definition includes owners of a controlling interest in auditors or advisors.  The Bahrain Code does not explicitly state this, though it does use the term "indirectly".

BIS Issues Consultative Document on Corporate Governance

Apparently, it's the season for corporate governance.  The BIS has just released a consultative document on the topic.  Text here.

The Central Bank of Bahrain is pretty well known for its practice of incorporating international standards into its regulations.  It will be interesting to see how they deal with this development given the release yesterday of Bahrain's much labored over Corporate Governance Code (which applies to all joint stock companies in Bahrain not just those regulated by the CBB.

Kuwaiti Banks Prepare to Sue Saad and AlGosaibi

AlQabas reports today that KFH, Commercial Bank of Kuwait, Gulf Bank, and Burgan Bank today launched the first steps towards suing the two groups after becoming convinced that negotiations had reached a dead end.  From the article, it sounds like negotiations never took place.  Quoting unnamed banking sources, AlQ says that the complaints were lack of response to repeated contacts (no answers) or agreeing to meetings but not showing.  Kind of hard to conduct negotiations under those conditions.

The four banks are owed some US$1.5 billion.  Legal advisors have apparently been selected.  Formal launch of legal proceedings is not expected for at least one month while loan files are put together (I'm assuming this refers to work at the lawyers since presumably the banks had their files together for their negotiations) and a decision is made as to where to file the suit.  Complicating factors are the diversity of governing laws for the debts (English, Kuwaiti, Saudi are mentioned), different types of credit extensions - bi-lateral loans, syndicated loans (in which Kuwaiti banks are participants). And I'll presume since KFH is involved some are structured as "Islamic" loans.   The latter point - where to file - will be a choice of the  most preferred/advantageous law (from the creditors' standpoint)  as well as the opportunity to put "hands" on the two group's assets.  

The Central Bank of Kuwait is said to be fully supportive.

The article notes that international banks are also reported to be getting ready to launch legal actions.

It also comments that Ahli United Bank has already (and it's been some time now) sued Saad Group in New York.

And what is perhaps the most relevant point here, the Central Bank of Kuwait has told the banks that they must comply with its request for 100% provisioning for the two groups by 31 December 2010.

Judging by that latter comment, I suppose the appropriate thing to do here is wish the banks in Kuwait الله معكم

Saudi Arabia Capital Markets Authority Withdraws License of Ernst and Young Consulting Saudi Arabia For Cause

The Saudi CMA announced today that it had withdrawn the license of Ernst and Young Saudi Arabia Consulting.  E&YSAC had been given a license to conduct arranging and advising activities in the Kingdom.

The license was canceled due to  "مخالفتها لعدد من أحكام نظام السوق المالية ولوائحه التنفيذية."  That is, for violations of the Saudi Capital Markets Law and its implementing resolutions.

The CMA also canceled the license for Tarteeb Securities Company (also for advising and arranging activities) but this was at Tarteeb's request.

And finally the CMA fined Al-Jouf Company for Agricultural Development  SR50,000 for failing to report its Finance Director's resignation (3 July 2009) until 25 January 2010.  Here's the link to Al-Jouf's page at the Tadawul.

Banks at DIFC Legally Barred From Charging Assets in UAE

Emirates Business 24/7 reports that banks operating out of the DIFC are legally incapable of taking a charge on collateral to secure their loans because only banks regulated by the Central Bank of the UAE may do so.  Banks within the DIFC are not subject to Central Bank of UAE regulations.  Rather the DFSA regulates them.

Presumably authorities will be keen to encourage lending and therefore will expand the law to allow banks regulated by the DFSA to register/perfect charges on collateral.

As to the second constraint, this is not uncommon.  There are restrictions for example on "Wholesale Banks" in the Kingdom of Bahrain in terms of deposit taking from residents of the Kingdom.

GCC Monetary Union: Meeting to Discuss Unified Banking Regulations and Supervision

Officials from Bahrain, Qatar, Kuwait and Saudi Arabia met in Riyadh today to discuss plans for unified banking regulations and supervision in the GCC states adhering to the Gulf Monetary Union.  At present Oman and the UAE have "excused" themselves from participation in the GMU.

Hopefully this process will lead to a raising of standards and supervision in some countries rather than bringing down the leader in that field to a lower level.

Saudi Capital Markets Authority - Three Fines Levied

The CMA announced it had levied three fines today:

1. SAR50,000 on AlRajhi Bank for delay in notifying the CMA of the resignation of  the GM of the Finance Group and GM of the Commercial Group.  Link to AlRajhi's English page at Tadawul.
2. SAR50,000 on Shams (Sun) Tourism Enterprise Company for failure to advise the CMA of the firing of the CEO by the Board.  The Board took its decision on 22 December 2009 but didn't notify the CMA until 27 December 2009.  Link to TEC's English page at Tadawul.
3. SAR50,000 on Sabb Takaful for failure to advise the CMA of several (unspecified) changes in senior management during the period 13 January 2008 through 13 October 2009 until 21 December 2009.  Link to Sabb's English language page at the Tadawul.

These are admittedly small amounts.  What I think is the story here is that the CMA is monitoring and penalizing companies for the sort of infractions that would have been overlooked in the past.

You can switch from the English language company pages to the definitive Arabic language ones by using the button at the top of the upper left page next to the "Home" button.  Also note that generally the announcement on fines are not translated into English at either the Tadawul site or over at the CMA's website. 

Central Bank of UAE - Lifts Restrictions on Bonus Share Issue for 2009

 

You' recall earlier that the CB UAE  had imposed restrictions on UAE banks' dividends for 2009, limiting cash dividends to 50% of net profit and script or bonus share dividends to 60%.  The given rationale for the measure being to preserve liquidity and capital within the banking sector.

At that time I posted that the restriction on script dividends seemed strange as the issue of bonus shares actually was a stronger form of capital retention than a mere ban on the payment of cash dividends.  

The neat thing about bonus shares is that a shareholder desiring cash can sell the extra shares and thus receive cash, though in doing so he or she reduces his or her relative percentage ownership in the bank.  No cash leaves the bank because this is a secondary market transaction.  Cash is exchanged between shareholders.  Bonus shares also have a downside:  they dilute future earnings per share.

Apparently, bankers in the UAE "shared" my view and persuaded the CB to rescind its restriction on 2009 bonus share issuance.  Bonus shares up to 100% of 2009 profit may therefore be issued.  The article notes that this restirction on dividends was the first time the CB UAE had intervened in such a fashion.  Also it noted that bankers argued that stock dividends actually strengthened capital.  Shareholders are said to be happy though not as happy as they would have been with bigger cash dividends.

The limit on cash dividends was not lifted or modified.

Kuwait International Bank Denies Knowledge of Any Takeover Attempt

KIB published an announcement on the Kuwait Stock Exchange denying any knowledge of a takeover or buyout attempt.  It also noted that any such action would require regulatory approval.

[11:5:53]  ِ.ايضاح من بنك الكويت الدولي بخصوص ما نشر فى احدى الصحف المحلية اليوم ‏
يعلن سوق الكويت للاوراق المالية بانه ورد الينا الان بان بنك الكويت ‏
الدولي يود ان يوضح بخصوص ما نشر فى احدى الصحف المحلية اليوم ‏
حول سعي تحالف للاستحواذ على حصة فى البنك ، يفيد البنك بان ادارة ‏
البنك ليس لديها علم بمضمون ما ورد فى الخبر .‏
وافاد البنك بان عمليات الاستحواذ تخضع لموافقة مسبقة من جهة الاشراف ‏
وفقا لاحكام القوانين والتعليمات الصادرة بهذا الشان .‏

Qatar Financial Centre Regulatory Authority

 

Announced a refreshed brand identity today.

Gulf Finance House - Board Meets with CBB Governor

Update 18 February:  Here's link to GFH Press Release which is source for the news articles.

The Gulf Daily News reports that the Board of GFH and some of its senior officers met with HE Rashid AlMaraj, Governor of the Central Bank of Bahrain and other senior officials of the CBB.

There are several possible interpretations as to the reason for this meeting.

My take is that the CBB is concerned about GFH and wants to make sure that GFH is fully engaged and has a proper strategy to extricate itself from its current constrained position.  Boards aren't generally invited to tea at the CBB.  And certainly not if everything is going swimmingly.

I think it's also telling that one of the indirect quotes attributed to Mr. AlMaraj related to the "importance of of updating the central bank with the latest developments at GFH".   One presumes this comment was made because of a perceived shortcoming in this area.  Otherwise, there would be no reason to mention it.  And of course those of you who read this blog will know that I've expressed a concern about this area more than once in the past.

The word "debated" is used in relation to discussions on GFH's strategy.  This could either be significant - in that the CBB raised some serious questions about the strategy.  Or just a poor choice of words by the journalist or even perhaps a less than artful translation of an Arabic word (if the story is from the GDN's Arabic "parent" paper).  On that score I'd note that the article on the meeting in AlBilad Newspaper does not use the term "debated".  The thrust of that article was a presentation by GFH of various elements of its strategy.  The term "debate" was not used.

Clearly, one would expect that during the presentation the CBB would ask questions and on certain points probably challenge the bank - at least to see how well thought out its plans were.  And perhaps to point out areas it thought were weak areas.  Since we don't have a transcript of the meeting, we don't really know the nature of these discussions.

Hopefully, GFH will find an exit and a path to a profitable future.

The Sky is Falling: Doomsday Regulation Scenario

The FT has an ominous article today quoting research done by JPMorgan Chase (a completely disinterested party, by the way) on what will happen to banks if all the regulations currently being considered are imposed on banks.

It's actually quite scary.  The projected average return on equity would drop to 5.4% from a projected 13.3%.  This could cause untold pain on shareholders and management.  And no doubt could have a very bad effect on the functioning of the economy because banks wouldn't engage in the sort of behavior that has given us our recent prosperity.

Or on the other hand banks could simply raise their prices - 33% we are warned - and the poor consumer would be hurt.  And you will notice that is really the focus of JPM's study.  They are warning against over regulation not for their own selfish purposes but to protect the innocent consumer.  I'd like to stop here for an observation.  You know if more of us would show just a bit of the concern for our fellow men that JPM displays in this research report the world would be a much much nicer place.

There's only one rub with this dire scenario:  the bit about "if all the regulations ... are implemented".

If a bright person at Motors Liquidation Corporation discovers a way to make a highly energy efficient  battery to power an electric car, MLC's stock will increase at least 20x.

Of course,  the probability of either of these happening is not high.  

The purpose of studies like these is to oppose attempts to impose greater regulations on banks by painting "doomsday" scenarios in a future that will never come to pass.  In the final analysis I suspect the  financial "reform" in the USA though perhaps at least or even more "radical" than the current health care bill in the Congress will prove to be "small beer".  Though one cannot discount that "death panels" for bankers may be just around the corner.

As usual, Suq Al Mal was way ahead of the market in identifying this manifest danger  See  SAM's earlier post - "Mr. Obama's War".  Though I'd note this post may not be suitable for the faint of heart.  It is rather graphic.

Analyst Disclosure:  The author of this blog holds a significant block of shares in a single "money center" US bank holding corporation. Suq Al Mal, however, does not trade in the shares of any company mentioned in this report  or any banking corporation or provide any investment banking or other advisory services to them. 

Gulf Finance House - Pretty Interview on Asset Sales

Reuters has an interview with Ted Pretty.  

Here are my comments.

1. Sorry to keep singing the same old tune, but I think the matters discussed in this interview are such that there should be a formal announcement on the BSE.  Not all of GFH's shareholders have access to Reuters.  Articles 42.1 and 42.5 of the CBB's Disclosure Rules seem the relevant chapter and verse.  After all I do remember reading somewhere earlier today about the need for transparency. This doesn't mean of course that management shouldn't give interviews, but that significant matters be disclosed promptly at the BSE - in my opinion.  The Reuters interview is from Tuesday.  Ample time to prepare a release for today.
2. With respect to the US$100 million facility (of which US$50 million matures 3 March), earlier I had understood from a press release that LMC had been engaged as an advisor.  It seems they are the arranger of the facility as well.  That doesn't appear to have been mentioned before.  
3. US$420 million of assets have been identified for sale (excluding the Bahrain Financial Harbor) with US$250 million to be sold.  US$250 million of asset sales are targeted for 1Q10.
4. Salim Rahimi, the long serving head of Real Estate, has left GFH.  A total of 35 staff members have been released.
5. The venture in Syria is still pending Central Bank of Syria approval and GFH is still in talks with investors about the bank.  You'll recall that this was mentioned earlier as a source of cash via an IPO within the next six months.  It's unclear to me if six months is a realistic time frame.

Central Bank of UAE - New Regulations on Loan Classification and Provisioning Immiment

 

AlKhaleej Newspaper (Dubai) reports on an interview with Saif Hadaf AlShamsi, Chief Executive Director of the CB UAE's Treasury Department that the CBB has prepared the final draft of regulations on loan classification and provisioning and submitted these to the Board for approval.  Approval is anticipated very shortly.   The regulations will apply to banks, finance companies and investment firms.

The new regulations contain the following:

1. A loan will automatically become substandard when payment is delayed 90 days from due date.  The current standard is 180.  90 days is pretty much the global norm.
2. Mandate a general reserve of 1.25% of total assets (a provision for the unrated portion of banks' portfolios).  (I'm not sure of the exact translation here of "الجانب غير المصنف في محافظ".  I believe this means for risks not recognized in specific provisions.  If anyone has a better translation or explanation, please post a comment).
3. Require that all borrowers (individuals, public sector, and private sector) be classified into one of five categories: Performing (Normal) Loans, Watch (Under Review) Loans, Substandard Loans, Doubtful Loans, and Loss.  Covered firms will have to have detailed procedures for classification and monitoring of their loans.
4. Each of the five categories will also have its own "days overdue" rule as well as required (presumably minimum) provisions.
5. Implementation will be immediate upon Board approval and financial statements will have to be prepared accordingly.   He noted that last October the CBB advised banks and other covered firms to prepare.
6. Also during October, firms were advised to transfer any interest accrued but not collected to a special account "Suspended Interest".

Finally on another topic he noted that UAE banks had excess liquidity with the CB UAE.  And that not a single bank has taken any "emergency" liquidity funding.  You'll recall that after DW' November announcement of its intention to reschedule certain of its subsidiaries' debts, the CB UAE had said it would provide liquidity if required. 

The revised standards represents a big, if somewhat belated, step forward for the UAE.  My hope is that this information will released in the aggregate by the CBB  (system wide) and by individual banks about their own portfolios in their financials.

The Investment Dar Financials Update - 2008 and First Three Quarters of 2009 To Central Bank by End of Month

AlQabas quotes sources that TID has acceded to the Central Bank of Kuwait's demands that it increase reserves and provisions in its year end 2008 financial statement.  The CBK has earlier (much earlier in fact) rejected the statements presented by TID.  AlQ's sources expects that the earliest the financials, including those for the first three quarters of 2009, will be submitted is at the end of February.  It will take some time for the CBK to complete its review before the financials are approved for release.  The period will depend on to what extent TID has met all of the CBK's requests.

Hopefully, the news is accurate.  And that TID will be able to publish its financials and move on with its rescheduling.

Central Bank of Bahrain Proposal To Tighten Limits on Large Credit Exposures

On the theory that regulators often craft regulations to deal with problems that have emerged, the 11 February Consultation Paper by the CBB on "Large Exposures"  indicates the Bahraini authorities' concerns with related party exposures.

The CBB's proposals are for the following.  As indicated these revisions have not yet been implemented but are being discussed with banks in Bahrain.

1. Loan and security underwriting where a strict 30% of capital rule is to be applied.  Amounts over this limit will not be allowed.  After an up to 90 day underwriting period, any remaining amounts will be subject to the normal large exposure limits, including the requirement to deduct from capital any amount over 15% of capital.   This underwriting limit is not available for transactions with connected counterparties.
   
2.  A new rule that limits placement of investments with clients or securitization of such assets to 25% of capital again for up to a 90 day period.  A Board approved written due diligence and procedures policy for such transactions must be in place to be eligible for this limit.
3. A reduction in the aggregate exposure limit for a Conventional Bank's exposure to both directors and associated companies and unconsolidated subsidiaries to 25% from 40%  (currently it's 20% each thus equalling 40%).  As well as a reduction in all exposure to connected counterparties (including management) from 40% to 25% of the bank's consolidated capital base.
4. A reduction in the aggregate exposure limit for an "Islamic Bank's" direct balance sheet exposure to directors to 10% from 15% and establishment of a new separate limit of 15% for  associated companies and unconsolidated subsidiaries.  Previously the limit for both categoties taken together was a total of 15%.   And the aggregate limit for all connected counterparties is proposed to be reduced to 25%  (This mirrors the limits on Conventional Banks).
5. A reduction in the aggregate exposure limits for an "Islamic Bank's" off balance sheet exposures to an individual connected counterparty funded by client Restricted Investment Accounts  to 15% of the RIAs and in aggregate to all connected counterparites to 25% instead of 35% of the bank's consolidated capital base.
6. A reduction in the aggregate exposure limit for an "Islamic Bank's" direct balance sheet and off balance sheet exposures (this second category funded by RIAs) to 20% of the bank's consolidated capital base down from 25% and in aggregate to all connected counterparties from 60% to 50%.

Comments.

1. Clearly, there are problems in Bahrain with connected counterparty exposures as well as banks taking on inordinate "placement" risks with investments.  Serious problems I'd guess.  The CBB is not engaged in this endeavor - which I suspect will raise fierce opposition from both Conventional and Islamic Banks - just for theoretical reasons.
2. I hadn't realized that an "Islamic Bank" was allowed by the regulations to have such concentrations of risk exposure including RIAs. At first look this seems high. Not sure what I'm missing.

And for those interested the CBB's definition of a  Restricted Investment Account.

Gulf Finance House - US$728 Million Loss for 2009 Does This Equal A Critical Covenant Breach in US$1 Billion Sukuk Program? APPARENTLY NOT

Update:  The US$728 million loss in 2009 apparently does not result in a breach of the US$1 Billion Sukuk program covenant because GFH issued shares during 4Q09.  Resulting year end shareholders' equity is US$433 million as per financials released.   At 30 September 2009, GFH had only US$17 million in Goodwill which would take them to US$416 million - unless of course this number changed.  This post has been accordingly amended to reflect this new information.

GFH has issued a press release on its 2009 results stating that it had a loss of US$728 million for 2009 and pointing out that a major cause of the losses was due to non cash provisions of US$656 million as if that somehow made the loss less onerous.  

Some quotes and then some comments.

Gulf Finance House Chairman Dr. Esam Janahi commented today saying “While 2009 proved challenging, it is important to view our results in the context of what prudently managed banks must do in tough economic times. We have closely reviewed all of our assets, made provisions where appropriate and have also begun to dispose of those which are non-core. We have asked management to review our cost base and also to ensure that we have a strategy to grow revenues. It is my strong view that as we achieve these objectives GFH will return to profitability and I am personally focused on this objective.”

Acting CEO Mr. Ted Pretty added “2009 was a year which presented unprecedented challenges to banks in both the global and GCC markets. All institutions have been impacted by declining asset values and by the tightness in liquidity.

And now for the comments.

1. The comment about non cash provisions is quite amusing.  Generally that's the way the provisions work.  The money for the assets is already gone.  It was spent when they were acquired.  So when the assets turn out to be worth less than one paid for them or worthless one takes a non cash charge.  In fact if a firm takes a cash charge for assets already paid for, it's probably a very clear sign that you need to engage forensic accountants.
2. This focus on the non cash character of provisions is also remarkable in another sense.  How many of you out there have seen a company make the statement "We earned $1 billion this year but only 60% was realized in cash"?  This reminds me of the comment attributed to Mr. Abbas who apparently only sees rating agency mistakes occurring when they downgrade an obligor. 
3. Come to think of it.  This announcement rather neatly demolishes the argument that S&P didn't know what it was doing when it downgraded GFH.  And in a remarkable coincidence was released on the same day that S&P was chastised for its lack of skill and understanding.
4. Sorry, Mr. Janahi, but it's hard to understand how one can call a company that starts the year with US$967 million in equity and loses US$728 million "prudently managed".  That's a loss of 75% of equity.  Wouldn't the "prudently managed" bank have much lesser or no losses?  The National Bank of Kuwait would fit the "prudently managed" description.   Note:  To be fair a 75% loss of equity is my estimate. GFH has not released its financial statements.  There may  well be some positive offsets to the  2009 net loss of which I am not aware. Though I note that starting with 30 September 2009 equity and allocating the 4Q09 loss of US$607 million, the decline in equity is 80%.
5. Yes, indeed all banks were affected by the Global downturn, but, Mr. Pretty, not all lost 75% of their capital.  So I'm afraid I'm finding it hard to see GFH's performance as the result of global or other external factors.  I'm presuming that if GFH made US$728 million this year management would not be crediting the market as being responsible.  But rather we'd be hearing about the vision, hard work and leadership of management. Selective responsibility where problems are the fault of others are about as credible as Mr. Abbas' apparent belief that rating agencies only make mistakes when they downgrade an obligor.
6. GFH's US$1 billion Sukuk Program requires that GFH maintain Consolidated Tangible Net Worth of no less than US$400 million. Otherwise 25% of its Sukuk certificate holders may accelerate repayment of the transaction.  And thus trigger GFH's Purchase Agreement.  The quotes below are from Page 112 of the Offering Circular.

Consolidated Tangible Net Worth Covenant
GFH irrevocably and unconditionally agrees and undertakes that until the Sukuk Certificates  have been redeemed in full in accordance with the Conditions, it will at all times maintain a  minimum of Consolidated Tangible Net Worth of not less than US$ 400,000,000 (or its  equivalent in Bahraini Dinars).

"Consolidated Tangible Net Worth” means, the aggregate of the amount for the time being  fully paid up or credited as fully paid up on GFH’s issued share capital, advance towards  share capital, share premium, any subsidiary company share grant, statutory reserves,  investment fair value reserves, and retained earnings, of the Group, but deducting any treasury shares, and deducting any amounts attributable to goodwill or other intangible assets.

Central Bank of Bahrain Regulations: Disclosure Standards

A new feature here at Suq al Mal.  We'll look at various CBB Regulations and see how the banking community is implementing them.

Back in October 2007, the CBB issued "Disclosure Standards" - a comprehensive and well thought out set of regulations which set forth requirements for listed companies and for the offering of securities in the Kingdom of Bahrain.  The full text of the regulations is here.

The particular text I'd like to focus on today is the following:

42.1 Immediate disclosure should be made of any information regarding an issuer's affairs, or about events or conditions in the market that will affect the issuer's securities, which meets either of the following standards:

Where the information is likely to have a significant effect on the price of any of the issuer's securities.

Where such information (after any necessary interpretation by securities analysts or other experts) is likely to be considered important, by a reasonable investor, in determining his choice of action.

Now, it would seem to me as a casual observer that if a firm were listed on the Bahrain Stock Exchange and it was say downgraded to below investment grade or perhaps even to Selective Default a reasonable person would expect that such a development would have a "significant effect" on the price of the issuer's securities.  And as an investor, AA would certainly like to have such information in "determining my choice of action".  That is, if a company's debt were considered highly risky, and given that debt has priority of repayment over equity, then it would seem that the equity was even more risky.  And riskier equity should have a higher return and therefore sell cheaper.

One might argue that the best course of action was a formal announcement on the Bahrain Stock Exchange where all might see it.  Second best would of course be posting such information on its website, though that approach assumes that investors will search for information.

With that as background, what are we to make of the following facts:

1. GFH has not published any such announcement at the BSE except in response to a BSE request as happened today.  And you will note that the BSE has been actively pursuing GFH for additional information on a regular and timely basis.
2. GFH has apparently not yet had the opportunity to update the ratings information on its website, though to be fair only a scant 80 days has passed since it was downgraded to BB+.  Currently, the rating is SD.

UAE Central Bank Governor Outlines UAE Bank Support Measures

Here is short two page speech in which HE Sultan Bin Nasser AlSuwaidi, the Governor of the Central Bank of the UAE, outlines the various programs undertaken by the UAE Government to support its banking sector.  Note:  This does not include the steps taken by Abu Dhabi to provide financing support to the Emirate of Dubai.

Not mentioned here are other initiatives being taken by the CB UAE, such as changing the non accrual rule from 180 days to 90 days, implementation of Basel II, etc.

Sensible Advice: Islamic Finance Not Necessarily Safer Than Non Islamic

Philip Thorpe Chairman and Chief Executive of the Qatar Financial Center Regulatory Authority gave an interview to Reuters at Davos.

Some times the truest statements are the most elegantly simple.

Philip had two.

Here's the first.

It's a myth to assume Islamic finance products are safer than conventional products and underlying risks should be studied more carefully, Qatar's top regulator said on Wednesday.

I guess that here at Suq Al Mal that's the equivalent of preaching to the choir.  Thinking Islamic products are safer than conventional ones is on a par with thinking that if my borrower's name is Muhammad he's more likely to pay me back than if his name is Ganesh.

And as I commented before these structures have not been rigorously tested in courts and because of their need to incorporate asset backed elements into their structures may pose some significant legal challenges.

Here's the second:

The role of regulators is to identify risks and in some instances to become a bit more interventionist," he said.

"If we saw a product that was unsafe for investors, we would not permit it to proceed. Regulation has never been about free markets. Regulation is not a consensual act. It's a political act...Recent events may have moved the bar up in terms of regulator tolerance."

It is so refreshing to see a regulator who doesn't feel he has to apologize for regulating markets. And understands that regulations and regulators are needed because the market is not perfect.